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PayPal Furthers Its In-Store Ambitions With Deals With Android Pay And Wells Fargo
April 18, 2017

By John Stewart

When PayPal Holdings Inc. made deals last year with Visa Inc., Mastercard Inc., Citigroup Inc., and Fidelity National Information Services (FIS), one key part of the agreements was access to the card networks’ tokenization engines to reach bank-issued payment cards. On Tuesday, PayPal began showing why this is so important.

Image Credit: PayPal Holdings Inc.

Tokenization agreements with the major card networks smooth the way for PayPal’s pact with Android Pay.

The company announced a pact with Alphabet Inc.’s Google unit to let shoppers use PayPal within the Android Pay mobile wallet for in-store as well as online and in-app purchases. PayPal also said a newly concluded deal with another major bank, this time Wells Fargo & Co., will let the bank’s customers use their Wells debit or credit cards within their PayPal wallet on Android devices for in-store transactions

To begin with, Android Pay users will tap their PayPal balance for purchases, but “over the coming months” PayPal will enable its users to use cards they’ve loaded in their PayPal wallets, says Bill Ready, executive vice president and chief operating officer at PayPal, in a blog post. The timing of the Wells program, meanwhile, is “soon,” according to Ready’s post.

The latest agreements depend crucially on the card networks’ agreements with PayPal to let the San Jose, Calif.-based processor obtain tokenized card credentials for its users. Tokenization converts card account numbers and other data into random strings of characters, foiling data theft at a time when retailers, banks, tech companies, and the networks are deploying mobile wallets that hold digitized payment cards for transactions at the point of sale as well as online and in-app.

The pacts also further a long-held ambition at PayPal to extend its reach into physical stores, where mobile wallets can be linked to merchant terminals via near-field communication, a contactless standard Android Pay and other wallets depend on. Most terminals that support EMV chip cards also can accept NFC. "This is a big step forward for PayPal's revised in-store strategy built on the foundation created by its deals with the networks," notes Rick Oglesby, president at AZ Payments Group LLC, a Mesa, Ariz.-based consultancy, in an email message.

While mobile-payments growth in the United States has been slow for most digital wallets, Wells said Tuesday that mobile banking is “the fastest growing channel in Wells Fargo’s history,” having attracted more than 20 million active users so far. The bank also said Android users are its most active mobile customers, at 16 sessions per month.

The Wells Fargo deal may help extend PayPal into physical stores, but it also brings benefits to Wells, bank officials said. “We’re looking to enable payments for our customers’ mobile-driven lives, and this upcoming capability allows us to further engage the millions of Wells Fargo customers who use their debit and credit cards on PayPal to seamlessly make mobile and online, and now in-store, purchases,” said Jim Smith, head of virtual channels, in a statement.

Indeed, the agreement with PayPal "helps Wells promote itself as an enabler of all things mobile while simultaneously strengthen[ing] Wells's relationships with the portion of its base that is also active with PayPal," says Oglesby. "For PayPal, it provides a large platform from which to launch its new in-store strategy."

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